# Acushnet Holdings Corp. (GOLF) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Acushnet Holdings Corp.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1672013/000167201324000008/golf-20231231.htm
Accession: 0001672013-24-000008
Filing date: 2024-02-29
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/GOLF/
All MD&A years: /company/GOLF/mda/
Previous year: /company/GOLF/mda/fy2022/ (FY 2022)
Next year: /company/GOLF/mda/fy2024/ (FY 2024)

ITEM 7.              MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with “Item 1A – Risk Factors” and our audited consolidated financial statements and the notes thereto included elsewhere in this Annual Report. This discussion contains forward‑looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the “Risk Factors” section of this report. Actual results may differ materially from those contained in any forward‑looking statements. You should carefully read the “Special Note Regarding Forward‑Looking Statements” section of this report following the Table of Contents.

Overview

We are the global leader in the design, development, manufacture and distribution of performance-driven golf products, and these products are widely recognized for their quality excellence. Today, we are the steward of two of the most revered brands in golf—Titleist, one of golf’s leading performance equipment brands, and FootJoy, one of golf’s leading performance wearable brands.

Our target market is dedicated golfers, who are the cornerstone of the worldwide golf industry. These dedicated golfers are avid and skill-biased, prioritize performance and commit the time, effort and money to improve their game. We seek to leverage a pyramid of influence product and promotion strategy, whereby our products are the most played by the world's best players, creating aspirational appeal for a broad range of golfers who want to emulate the performance of the game’s best players.

We believe our differentiated focus on performance and quality excellence, enduring connections with dedicated golfers, and favorable and market-differentiating mix of consumable and durable products have been the key drivers of our financial performance.

Basis of Presentation

The accompanying results have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of Acushnet Holdings Corp. ("the Company"), our wholly-owned subsidiaries and less than wholly-owned subsidiaries, including a variable interest entity (“VIE”) in which we are the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.

We have four reportable segments. These segments include Titleist golf balls, Titleist golf clubs, Titleist golf gear and FootJoy golf wear. Segment operating income includes directly attributable expenses and certain shared costs of corporate administration that are allocated to the reportable segments, but excludes certain other costs, such as interest expense, net; restructuring costs; the non-service cost component of net periodic benefit cost; transaction fees; as well as other non-operating gains and losses that are not allocated to the reportable segments.

Key Factors Affecting Our Results of Operations

Rounds of Play

We generate substantially all of our sales from the sale of golf-related products, including golf balls, golf clubs, golf shoes, golf gloves, golf gear and golf apparel. The demand for golf-related products in general, and golf balls in particular, is directly related to the number of golf participants and the number of rounds of golf being played by these participants. While rounds of play had been relatively stable for years, the game experienced an approximate 8% global increase in rounds in both 2020 and 2021 as dedicated golfers took full advantage of favorable weather, hybrid work schedules and an increase in discretionary time due to the circumstances attendant to the COVID-19 pandemic. Golf remained in high demand in 2022 and 2023, with the number of rounds played in the U.S. approximately 16% and 20% higher, respectively, than the number of rounds played in 2019. We anticipate that rounds of golf played will remain resilient in 2024, driven by golfer demographics, dedicated golfers, increased participation and economic conditions.

Economic Conditions

Our products are recreational in nature and are therefore discretionary purchases for consumers. Consumers are generally more willing to spend their time and money to play golf and make discretionary purchases of golf products when economic conditions are favorable and when consumers feel confident and prosperous. Discretionary spending on golf and the golf products we sell is affected by consumer spending habits, as well as by many macroeconomic factors, including general business conditions, stock market prices and volatility, corporate spending, housing prices, the rate of inflation, interest rates,

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the availability of consumer credit, taxes and consumer confidence in future economic conditions. Consumers may reduce or postpone purchases of our products as a result of shifts in consumer spending habits as well as during periods when economic uncertainty increases, disposable income is lower, or during periods of actual or perceived unfavorable economic conditions.

Demographic Factors

Golf is a recreational activity that requires time and money. The golf industry has been principally driven by the age cohort of 30 years and above, primarily “gen‑xers,” “baby boomers” and, increasingly, "millennials" who have the time and money to engage in the sport. Since a significant number of baby boomers have yet to retire, we anticipate growth in spending from this demographic, as it has been demonstrated that rounds of play increase significantly as those in this cohort reach retirement. Further, we also believe that the percentage of women golfers will continue to grow, as a higher percentage of new golfers in recent years have been women. Beyond the gen‑x and baby boomer generation, promising developments in golf include the generational shift with millennial golfers making their marks at both professional and amateur levels and the increase in the number of juniors (ages 6-17) who play golf in recent years.

Golf participation among younger generations and certain socioeconomic and ethnic groups may not prove to be as popular as it is among older "millennials" and the current gen‑x and baby boomer generations. In such case, sales of our products could be negatively impacted.

Weather Conditions

Weather conditions in most parts of the world, including our primary geographic markets, generally restrict golf from being played year-round, with many of our on‑course retail customers closed during the cold weather months and, to a lesser extent, during the hot weather months. Unfavorable weather conditions in our major markets, such as a particularly long winter, a cold and wet spring, or an extremely hot summer, would reduce the number of playable days and rounds played in a given year, which would result in a decrease in the amount spent by golfers and golf retailers on our products, particularly with respect to consumable products such as golf balls and golf gloves. In addition, unfavorable weather conditions and natural disasters can adversely affect the number of custom club fitting and trial events that we can perform during the key selling period. Unusual or severe weather conditions throughout the year, such as storms or droughts or other water shortages, can negatively affect golf rounds played both during the events and afterward, as weather damaged golf courses are repaired and golfers focus on repairing the damage to their homes, businesses and communities. Consequently, sustained adverse weather conditions, especially during the warm weather months, could impact our sales. Adverse weather conditions may have a greater impact on us than other golf equipment companies as we have a large percentage of consumable products in our product portfolio, and the purchase of consumable products are more dependent on the number of rounds played in a given year.

Seasonality

In general, during the first quarter, we begin selling our products into the golf retail channel for the new golf season. This initial sell‑in generally continues into the second quarter. Our second‑quarter sales are significantly affected by the amount of sell‑through, in particular the amount of higher value discretionary purchases made by customers, which drives the level of reorders of the products sold during the first quarter. Our third‑quarter sales are generally dependent on reorder business, and are generally lower than the second quarter as many retailers begin decreasing their inventory levels in anticipation of the end of the golf season. Our fourth‑quarter sales are generally less than the other quarters due to the end of the golf season in many of our key markets, but can also be affected by key product launches, particularly golf clubs. This seasonality, and therefore quarter to quarter fluctuations, can be affected by many factors, including weather conditions as discussed previously under “-Weather Conditions” and the timing of new product introductions as discussed below under “-Cyclicality.” This seasonality affects sales in each of our reportable segments differently. In general, however, because of this seasonality, a larger portion of our sales and profitability generally occurs during the first half of the year.

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Cyclicality

Our sales can also be affected by the launch timing of new products. Product introductions generally stimulate sales as the golf retail channel takes on inventory of new products. Reorders of these new products then depend on the rate of sell‑through. Announcements of new products can often cause our customers to defer purchasing additional golf equipment until our new products are available. The varying product introduction cycles described below may cause our results of operations to fluctuate as each product line has different volumes, prices and margins.

Product Life Cycles

Titleist Golf Balls Segment

We generally launch new Titleist golf ball models on a two-year cycle. In general, in odd-numbered years, we launch our premium performance models, Pro V1 and Pro V1x, in the first quarter and in even-numbered years, we launch our premium performance AVX model and most performance models in the first and second quarters. For new golf ball models, sales occur at a higher rate in the year of the initial launch than in the second year. Given the Pro V1 franchise is our highest volume and our highest priced product in this product category, we typically have higher net sales in our Titleist golf ball segment in odd-numbered years.

Titleist Golf Clubs Segment

We generally launch new Titleist golf club models on a two‑year cycle using the following product launch cycle. At present, we anticipate continuing to use this product launch cycle going forward because we believe it aligns our launches with the purchase habits of dedicated golfers. In general, we launch:

•drivers and fairways in the third or fourth quarter of even‑numbered years, which typically results in an increase in sales of drivers and fairways during such quarters because retailers take on initial supplies of these products as stock inventory, with increased sales generated by such new products continuing the following spring and summer of odd‑numbered years;

•hybrids in the first or second quarter of odd-numbered years, with the majority of sales generated by such new products occurring in the spring, summer and fall of odd‑numbered years;

•irons in the third or fourth quarter of odd‑numbered years, with the majority of sales generated by such new products occurring in the following spring and summer of even‑numbered years because a higher percentage of our new irons as compared to our drivers and fairways are sold through on a custom fit basis and the spring and summer is when golfers tend to make such custom fit purchases;

•Vokey Design wedges in the first quarter of even‑numbered years, with the majority of sales generated by such new products occurring in the spring and summer of such even‑numbered years; and

•Scotty Cameron putters in the first quarter, with Super Select models launched in odd-numbered years and Phantom X models launched in even-numbered years, with the majority of sales generated by such new products occurring in the spring and summer of the year in which they are launched.

As a result of this product launch cycle, we generally expect to have higher net sales in our Titleist golf clubs segment in even‑numbered years.

Titleist Golf Gear and FootJoy Golf Wear Segments

Our Titleist golf gear and FootJoy golf wear businesses are not subject to the same degree of cyclical fluctuation as our golf ball and golf club businesses as new product offerings and styles are generally introduced each year and at different times during the year.

Foreign Currency

Net sales generated in regions outside of the United States represented nearly half of our net sales in each of the three years ended December 31, 2023. Substantially all of these net sales were generated in the applicable local currency, which include, but are not limited to, the Japanese yen, the Korean won, the British pound sterling, the euro and the Canadian dollar. In contrast, substantially all of the purchases of inventory, raw materials or components by subsidiaries in these regions are made in U.S. dollars. For each of the three years ended December 31, 2023, approximately 85% of our cost of goods sold incurred by our subsidiaries in regions outside of the United States were denominated in U.S. dollars. Because these subsidiaries incur substantially all of their cost of goods sold in currencies that are different from the currencies in which they

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generate substantially all of their sales, we are exposed to transaction risk attributable to fluctuations in such exchange rates, which can impact the gross profit of these subsidiaries.

In an effort to protect against adverse fluctuations in foreign exchange rates and minimize foreign currency transaction risk, we take an active approach to currency hedging, which includes among other things, entering into various foreign exchange forward contracts, with the primary goal of providing earnings and cash flow stability. As a result of our active approach to currency hedging, we are able to take a longer term view and more flexible approach towards pricing our products and making cost‑related decisions. In taking this active approach, we coordinate with the management teams of our key subsidiaries on an ongoing basis to share our views on anticipated currency movements and make decisions on securing foreign currency exchange contract positions that are incorporated into our business planning and forecasting processes. Because our hedging activities are designed to reduce volatility, they reduce not only the negative impact of a stronger U.S. dollar but could also reduce the positive impact of a weaker U.S. dollar.

Because our consolidated accounts are reported in U.S. dollars, we are also exposed to currency translation risk when we translate the financial results of our consolidated subsidiaries from their local currency into U.S. dollars. In each of the three years ended December 31, 2023, nearly one-half of our net sales and one-third of our total operating expenses (which amounts represent substantially all of the operating expenses incurred by our subsidiaries in regions outside of the United States) were denominated in foreign currencies. Fluctuations in foreign currency exchange rates may positively or negatively affect our reported financial results and can significantly affect period‑over‑period comparisons. A strengthening of the U.S. dollar relative to our foreign currencies could materially adversely affect our business, financial condition and results of operations.

Key Performance Measures

We use various financial metrics to measure and evaluate our business, including, among others: (i) net sales on a constant currency basis, (ii) Adjusted EBITDA on a consolidated basis, (iii) Adjusted EBITDA margin on a consolidated basis and (iv) segment operating income (loss).

Since a significant percentage of our net sales are generated outside of the United States, we use net sales on a constant currency basis to evaluate the sales performance of our business in period over period comparisons and for forecasting our business going forward. Constant currency information allows us to estimate what our sales performance would have been without changes in foreign currency exchange rates. This information is calculated by taking the current period local currency sales and translating them into U.S. dollars based upon the foreign currency exchange rates for the applicable comparable prior period. This constant currency information should not be considered in isolation or as a substitute for any measure derived in accordance with U.S. GAAP. Our presentation of constant currency information may not be consistent with the manner in which similar measures are derived or used by other companies.

We primarily use Adjusted EBITDA on a consolidated basis to evaluate the effectiveness of our business strategies, assess our consolidated operating performance and make decisions regarding pricing of our products, go to market execution and costs to incur across our business. We present Adjusted EBITDA as a supplemental measure of our operating performance because it excludes the impact of certain items that we do not consider indicative of our ongoing operating performance. We define Adjusted EBITDA in a manner consistent with the term “Consolidated EBITDA” as it is defined in our credit agreement. Adjusted EBITDA represents net income (loss) attributable to Acushnet Holdings Corp. plus interest expense, net, income tax expense (benefit), depreciation and amortization and other items defined in our agreement, including: share-based compensation expense; restructuring and transformation costs; certain transaction fees; extraordinary, unusual or non-recurring losses or charges; indemnification expense (income); certain pension settlement costs; certain other non-cash (gains) losses, net and the net income (loss) relating to noncontrolling interests. Adjusted EBITDA is not a measurement of financial performance under U.S. GAAP. It should not be considered an alternative to net income (loss) attributable to Acushnet Holdings Corp. as a measure of our operating performance or any other measure of performance derived in accordance with U.S. GAAP. In addition, Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non‑recurring items, or affected by similar non‑recurring items. Adjusted EBITDA has limitations as an analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as reported under U.S. GAAP. Our definition and calculation of Adjusted EBITDA is not necessarily comparable to other similarly titled measures used by other companies due to different methods of calculation. For a reconciliation of Adjusted EBITDA to net income (loss) attributable to Acushnet Holdings Corp., see “—Results of Operations” below.

We also use Adjusted EBITDA margin on a consolidated basis, which measures our Adjusted EBITDA as a percentage of net sales, because our management uses it to evaluate the effectiveness of our business strategies, assess our consolidated operating performance and make decisions regarding pricing of our products, go to market execution and costs to incur across our business. We present Adjusted EBITDA margin as a supplemental measure of our operating performance because it excludes the impact of certain items that we do not consider indicative of our ongoing operating performance.

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Adjusted EBITDA margin is not a measurement of financial performance under U.S. GAAP. It should not be considered an alternative to any measure of performance derived in accordance with U.S. GAAP. In addition, Adjusted EBITDA margin should not be construed as an inference that our future results will be unaffected by unusual or non‑recurring items, or affected by similar non‑recurring items. Adjusted EBITDA margin has limitations as an analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as reported under U.S. GAAP. Our definition and calculation of Adjusted EBITDA margin is not necessarily comparable to other similarly titled measures used by other companies due to different methods of calculation.

Lastly, we use segment operating income (loss) to evaluate and assess the performance of each of our reportable segments and to make budgeting decisions.

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Results of Operations

The following table sets forth, for the periods indicated, our results of operations.

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["(in thousands)","2023","","2022","","2021"],["Net sales","$","2,381,995","","","$","2,270,336","","","$","2,147,930"],["Cost of goods sold","1,129,484","","","1,091,103","","","1,029,493"],["Gross profit","1,252,511","","","1,179,233","","","1,118,437"],["Operating expenses:"],["Selling, general and administrative","888,145","","","833,422","","","795,422"],["Research and development","64,839","","","56,393","","","55,335"],["Intangible amortization","14,222","","","7,885","","","7,868"],["Income from operations","285,305","","","281,533","","","259,812"],["Interest expense, net","41,288","","","13,269","","","7,709"],["Other expense, net","2,417","","","8,829","","","4,280"],["Income before income taxes","241,600","","","259,435","","","247,823"],["Income tax expense","42,993","","","54,351","","","63,583"],["Net income","198,607","","","205,084","","","184,240"],["Less: Net income attributable to noncontrolling interests","(178)","","","(5,806)","","","(5,367)"],["Net income attributable to Acushnet Holdings Corp.","$","198,429","","","$","199,278","","","$","178,873"],["Adjusted EBITDA:"],["Net income attributable to Acushnet Holdings Corp.","$","198,429","","","$","199,278","","","$","178,873"],["Interest expense, net","41,288","","","13,269","","","7,709"],["Income tax expense","42,993","","","54,351","","","63,583"],["Depreciation and amortization","51,356","","","41,706","","","41,243"],["Share-based compensation","29,709","","","24,083","","","27,639"],["Other extraordinary, unusual or non-recurring items, net (1)(2)","12,185","","","(85)","","","3,923"],["Net income attributable to noncontrolling interests","178","","","5,806","","","5,367"],["Adjusted EBITDA","$","376,138","","","$","338,408","","","$","328,337"],["Adjusted EBITDA margin","15.8","%","","14.9","%","","15.3","%"]]
[[/GREPCENT_TABLE]]

___________________________________

(1)    The year ended December 31, 2023 includes costs associated with the optimization of our distribution and custom fulfillment capabilities.

(2) The year ended December 31, 2021 includes pension settlement costs of $2.1 million related to lump-sum distributions to participants in our defined benefit plans as a result of the voluntary retirement program as part of management’s approved restructuring program, as well as $2.4 million of severance and other costs associated with management's program to refine our business model and improve operational efficiencies.

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Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

Net sales by reportable segment is summarized as follows:

[[GREPCENT_TABLE]]
[["","Year ended","","","","","","Constant Currency"],["","December 31,","","Increase/(Decrease)","","Increase/(Decrease)"],["(in millions)","2023","","2022","","$ change","","% change","","$ change","","% change"],["Titleist golf balls","$","761.7","","","$","678.8","","","$","82.9","","","12.2","%","","$","91.3","","","13.5","%"],["Titleist golf clubs","658.6","","","609.6","","","49.0","","","8.0","%","","58.2","","","9.5","%"],["Titleist golf gear","216.2","","","204.9","","","11.3","","","5.5","%","","14.3","","","7.0","%"],["FootJoy golf wear","596.4","","","618.0","","","(21.6)","","","(3.5)","%","","(12.7)","","","(2.1)","%"]]
[[/GREPCENT_TABLE]]

Net sales information by region is summarized as follows:

[[GREPCENT_TABLE]]
[["","Year ended","","","","","","Constant Currency"],["","December 31,","","Increase/(Decrease)","","Increase/(Decrease)"],["(in millions)","2023","","2022","","$ change","","% change","","$ change","","% change"],["United States","$","1,350.0","","","$","1,227.8","","","$","122.2","","","10.0","%","","$","122.2","","","10.0","%"],["EMEA(1)","314.7","","","321.5","","","(6.8)","","","(2.1)","%","","(4.6)","","","(1.4)","%"],["Japan","149.4","","","161.0","","","(11.6)","","","(7.2)","%","","0.2","","","0.1","%"],["Korea","301.8","","","312.7","","","(10.9)","","","(3.5)","%","","(5.2)","","","(1.7)","%"],["Rest of World","266.1","","","247.3","","","18.8","","","7.6","%","","29.0","","","11.7","%"],["Total net sales","$","2,382.0","","","$","2,270.3","","","$","111.7","","","4.9","%","","$","141.6","","","6.2","%"]]
[[/GREPCENT_TABLE]]

_______________________________________________________________________________

(1) Europe, the Middle East and Africa ("EMEA")

Segment operating income by reportable segment is summarized as follows:

[[GREPCENT_TABLE]]
[["","Year ended"],["","December 31,","","Increase/(Decrease)"],["(in millions)","2023","","2022","","$ change","","% change"],["Titleist golf balls","$","144.3","","","$","112.7","","","$","31.6","","","28.0","%"],["Titleist golf clubs","106.5","","","100.9","","","5.6","","","5.6","%"],["Titleist golf gear","21.2","","","11.7","","","9.5","","","81.2","%"],["FootJoy golf wear","16.1","","","37.0","","","(20.9)","","","(56.5)","%"]]
[[/GREPCENT_TABLE]]

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Net Sales

For the year ended December 31, 2023, net sales increased 4.9%, or 6.2% on a constant currency basis, compared to the year ended December 31, 2022. This increase was driven primarily by higher sales volumes in Titleist golf balls, Titleist golf clubs and Titleist golf gear. This increase was partially offset by a sales volume decline in FootJoy golf wear, primarily in footwear. A decline in sales volume of products that are not allocated to one of our four reportable segments also contributed to the change in net sales.

The increase in net sales in the United States was primarily as a result of increases of $62.0 million in Titleist golf balls, $41.0 million in Titleist golf clubs, $7.7 million in FootJoy golf wear and $7.3 million in Titleist golf gear. The increase in Titleist golf balls was primarily driven by higher sales volumes and higher average selling prices of our latest generation Pro V1 and Pro V1x golf balls. The increase in Titleist golf clubs was primarily driven by higher sales volumes and higher average selling prices associated with the launches of our T-Series irons and Scotty Cameron Super Select putters, as well as higher sales volumes associated with the launch of our TSR hybrids, partially offset by lower sales volumes of second model year SM9 wedges. The increase in FootJoy golf wear was primarily driven by higher sales volumes of apparel and higher average selling prices of apparel and footwear, largely offset by lower sales volumes of footwear. The increase in Titleist golf gear was primarily driven by higher sales volumes of golf bags and higher average selling prices in travel.

Net sales in regions outside of the United States decreased 1.0%, or increased 1.9% on a constant currency basis. Net sales increased in Rest of World, partially offset by decreases in Korea and EMEA, on a constant currency basis. The increase in Rest of World was due to net sales increases across all reportable segments, primarily in Titleist golf balls and Titleist golf clubs. In Korea, the decrease was due to lower sales volumes of products that are not allocated to one of our four reportable segments and lower sales volumes in FootJoy golf wear, partially offset by net sales increases in all other reportable segments. In EMEA, the decrease was due to lower sales volumes in FootJoy golf wear and lower sales volumes of products that are not allocated to one of our four reportable segments, partially offset by increases in all other reportable segments. In Japan, net sales were flat with increases in Titleist golf balls and Titleist golf gear offset by net sales decreases in Titleist golf clubs and FootJoy golf wear.

Gross Profit

Gross profit increased $73.3 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. Gross margin increased to 52.6% for the year ended December 31, 2023 compared to 51.9% for the year ended December 31, 2022. The increase in gross profit primarily resulted from increases in Titleist golf balls of $52.7 million, Titleist golf clubs of $37.8 million, and Titleist golf gear of $13.8 million, partially offset by a decrease in FootJoy golf wear of $20.3 million. This increase in gross profit was primarily due to the higher sales volumes and higher average selling prices discussed above, lower inbound freight costs across all reportable segments and lower royalty expense in Titleist golf clubs. These increases were partially offset by the decline in FootJoy golf wear sales volumes discussed above. The remaining change in gross profit was due to lower sales volumes of products not allocated to one of our four reportable segments. The increase in gross margin was primarily due to the lower inbound freight costs.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses increased $54.7 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. This increase was primarily due to an increase of $19.6 million in advertising and promotional expenses, an increase of $20.0 million in selling expense, $10.4 million of costs related to the optimization of our distribution and custom fulfillment capabilities, as well as an increase of $4.1 million in administrative expense and includes the favorable impact of changes in foreign currency exchange rates. The increase in advertising and promotional expenses was primarily related to new product launches and professional tour expenses. The increase in selling expense was primarily due to the higher sales volumes as discussed previously and higher employee-related expenses, partially offset by lower retail commission expense in Korea. The increase in administrative expense was due to increased employee-related expenses partially offset by lower information technology-related expenses. SG&A also includes a decrease of $7.9 million in foreign currency transaction losses, offset in part by a decrease in gains on foreign exchange forward contracts of $3.4 million.

Research and Development

R&D expenses increased $8.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of increases to support new product introductions and employee-related expenses.

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Intangible Amortization

Intangible amortization expense increased $6.3 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of the acquisition of trademarks related to our Titleist golf club and Titleist golf gear businesses in the fourth quarter of 2022 and the first quarter of 2023, respectively.

Interest Expense, net

Interest expense, net increased $28.0 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. This increase was primarily due to an increase in borrowings, as well as an increase in interest rates for the year ended December 31, 2023.

Other Expense, net

Other expense, net decreased $6.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to a decrease in the non-service cost component of net periodic benefit cost, as well as changes in the fair value of Rabbi trust assets.

Income Tax Expense

Income tax expense decreased $11.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. Our effective tax rate ("ETR") was 17.8% for the year ended December 31, 2023 compared to 20.9% for the year ended December 31, 2022. The decrease in ETR was primarily driven by changes in our jurisdictional mix of earnings.

Segment Results

Titleist Golf Balls Segment

Net sales in our Titleist golf balls segment increased 12.2%, or 13.5% on a constant currency basis, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily driven by higher sales volumes and higher average selling prices of our latest generation Pro V1 and Pro V1x golf balls launched in the first quarter of 2023.

Operating income in our Titleist golf balls segment increased $31.6 million, or 28.0%, compared to the prior year period. The increase in operating income resulted from higher gross profit of $52.7 million, partially offset by higher operating expenses of $20.8 million. The increase in gross profit was primarily driven by higher sales volumes and higher average selling prices as discussed above and lower inbound freight costs. Operating expenses increased primarily as a result of increases of $9.3 million, $8.0 million and $3.6 million in selling, advertising and promotional, and research and development expenses, respectively.

Titleist Golf Clubs Segment

Net sales in our Titleist golf clubs segment increased 8.0%, or 9.5% on a constant currency basis, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase in net sales was largely due to higher sales volumes and higher average selling prices of our T-Series irons launched in the third quarter of 2023 and Scotty Cameron Super Select putters launched in the first quarter of 2023, as well as higher sales volumes of our TSR hybrids launched in the first quarter of 2023, partially offset by lower sales volumes of second model year SM9 wedges.

Operating income in our Titleist golf clubs segment increased $5.6 million, or 5.6%, compared to the prior year period. The increase in operating income resulted from higher gross profit of $37.8 million, partially offset by higher operating expenses of $28.5 million and intangible amortization expense of $3.6 million. The increase in gross profit was primarily due to higher average selling prices, higher sales volumes, lower royalty expense and lower inbound freight costs. Operating expenses increased primarily as a result of increases of $12.7 million, $8.8 million and $4.7 million in selling, advertising and promotional, and research and development expenses, respectively. Intangible amortization expense increased due to the acquisition of trademarks in the fourth quarter of 2022.

Titleist Golf Gear Segment

Net sales in our Titleist golf gear segment increased 5.5%, or 7.0% on a constant currency basis, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily driven by higher sales volumes across all product categories, except gloves, and higher average selling prices across all product categories.

Operating income in our Titleist golf gear segment increased $9.5 million, or 81.2%, compared to the prior year period. The increase in operating income resulted from higher gross profit of $13.8 million, partially offset by higher operating

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expenses of $1.9 million and higher intangible amortization expense of $2.3 million. Gross profit increased primarily due to lower inbound freight costs, higher sales volumes and higher average selling prices. Operating expenses increased primarily due to an increase of $2.1 million in selling expense. Intangible amortization expense increased due to the acquisition of trademarks in the first quarter of 2023.

FootJoy Golf Wear Segment

Net sales in our FootJoy golf wear segment decreased 3.5%, or 2.1% on a constant currency basis, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease was primarily due to a sales volume decrease in footwear partially offset by sales volume increase in apparel.

Operating income in our FootJoy golf wear segment decreased $20.9 million, or 56.5% compared to the prior year period. The decrease in operating income resulted from lower gross profit of $20.3 million. Gross profit decreased primarily as a result of the sales volume decrease and unfavorable manufacturing absorption and increased promotional activity in footwear, partially offset by increased sales volumes in apparel and lower inbound freight costs. Operating expenses were largely flat as increased advertising and promotional expenses were offset by lower selling expenses.

Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

A detailed review of our results of operations for the year ended December 31, 2022 as compared to the year ended December 31, 2021 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Annual Report for the year ended December 31, 2022, which was filed with the SEC on March 1, 2023, and is incorporated herein by reference.

Liquidity and Capital Resources

Our primary cash needs relate to working capital, capital expenditures, servicing our debt, paying dividends, repurchasing shares of our common stock and pension contributions. Additionally, from time to time, we may make strategic acquisitions and investments to complement our products, technologies or businesses, which could impact our liquidity needs. We expect to rely on cash flows from operations and borrowings under our revolving credit facility and local credit facilities as our primary sources of liquidity.

Our liquidity is impacted by our level of working capital, which is cyclical as a result of the general seasonality of our business. Our accounts receivable balance is generally at its highest starting at the end of the first quarter and continuing through the second quarter, and declines during the third and fourth quarters as a result of both an increase in cash collections and lower sales. Our inventory balance also fluctuates as a result of the seasonality of our business. Generally, our buildup of inventory starts during the fourth quarter and continues through the first quarter and into the beginning of the second quarter in order to meet demand for our initial sell-in during the first quarter and reorders in the second quarter. Both accounts receivable and inventory balances are impacted by the timing of new product launches.

As of December 31, 2023, we had $63.7 million of unrestricted cash and cash equivalents (including $11.8 million attributable to our FootJoy golf shoe variable interest entity). As of December 31, 2023, 97.3% of our total unrestricted cash and cash equivalents was held by subsidiaries in regions outside of the United States, including our FootJoy golf shoe variable interest entity. We manage our worldwide cash requirements by monitoring the funds available among our subsidiaries and determining the extent to which we can access those funds on a cost effective basis. We are not aware of any restrictions on repatriation of these funds and, subject to foreign withholding taxes, those funds could be repatriated, if necessary. We have repatriated, and intend to repatriate, funds to the United States from time to time to satisfy domestic liquidity needs arising in the ordinary course of business.

Macroeconomic factors could impact our results of operations in ways we cannot currently predict. Nonetheless, we believe that cash expected to be provided by operating activities, together with our cash on hand and the availability of borrowings under our revolving credit facility and our local credit facilities (subject to customary borrowing conditions) will be sufficient to meet our liquidity requirements for at least the next 12 months. Our ability to generate sufficient cash flows from operations is, however, subject to many risks and uncertainties, including current and future economic trends and conditions, demand for our products, availability and cost of our raw materials and components, foreign currency exchange rates and other risks and uncertainties applicable to our business, as described in "Risk Factors," Item 1A of Part I included elsewhere in this report.

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Debt and Financing Arrangements

As of December 31, 2023, we had $616.7 million of availability under our multi-currency revolving credit facility after giving effect to $8.1 million of outstanding letters of credit. Additionally, we had $35.6 million available under certain local credit facilities of our subsidiaries.

Pursuant to an indenture dated October 3, 2023 (the "Indenture"), Acushnet Company (the "Issuer"), a wholly owned subsidiary of the Company, completed the issuance and sale of $350.0 million in gross proceeds of the Issuer's 7.375% senior unsecured notes due 2028 (the “Notes”). The proceeds from the Notes offering were used to repay $345.6 million of the outstanding borrowings under the Company's multi-currency revolving credit facility, as well as to pay fees and expenses related to the Notes offering.

Our credit agreements contain customary affirmative and restrictive covenants, including, among others, financial covenants based on our leverage and interest coverage ratios. Our credit agreements also include customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations to be immediately due and payable. As of December 31, 2023, we were in compliance with all covenants under our credit agreements.

The Indenture contains customary affirmative and restrictive covenants. The Indenture also includes customary events of default, the occurrence of which could result in each holder of the Notes having the right to require the Issuer to purchase all or a portion of such holder's Notes at a purchase price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest. As of December 31, 2023, we were in compliance with all covenants under the Indenture.

See "Notes to Consolidated Financial Statements- Note 11- Debt and Financing Arrangements," Item 8 of Part II included elsewhere in this report, for a description of our debt and financing arrangements. Additionally, see "Risk Factors - Risks Related to Our Indebtedness", Item 1A of Part I included elsewhere in this report, for further discussion surrounding the risks and uncertainties related to our debt and financing arrangements.

Dividends and Share Repurchase Program

During the year ended December 31, 2023, we paid dividends on our common stock of $52.5 million to our shareholders. During the first quarter of 2024, our Board of Directors declared a dividend of $0.215 per share of common stock to shareholders of record as of March 8, 2024, which is payable on March 22, 2024.

As of December 31, 2023, our Board of Directors had authorized us to repurchase up to an aggregate of $700.0 million of our issued and outstanding common stock.

On June 9, 2023, we entered into a new agreement with Magnus Holdings Co., Ltd. (“Magnus”), a wholly-owned subsidiary of Fila Holdings Corp., to purchase from Magnus an equal amount of our common stock as we purchase on the open market, over the period of time from June 12, 2023 through October 27, 2023, up to an aggregate of $100.0 million at the same weighted average per share price (the "2023 Agreement").

During 2023, we repurchased 6,486,405 shares of common stock at an average price of $51.25 for an aggregate of $332.4 million. Included in this amount were 3,993,522 shares of common stock repurchased from Magnus for an aggregate of $200.0 million, in satisfaction of our obligations pursuant to the 2023 Agreement, as well as our previously disclosed Magnus share repurchase agreement.

As of December 31, 2023, we had $75.0 million remaining under the current share repurchase authorization. On February 15, 2024, our Board of Directors authorized us to repurchase up to an additional $300.0 million of our issued and outstanding common stock, bringing the total authorization up to $1.0 billion since the share repurchase program was established in 2018.

See “Notes to Consolidated Financial Statements-Note 16-Common Stock,” Item 8 of Part II, included elsewhere in this report, for a description of our share repurchase program and Magnus share repurchase agreements.

Other Business Developments

In January 2023, we acquired certain trademarks from West Coast Trends, Inc., an industry leader specializing in Club Glove premium performance golf travel products, for $25.2 million. See “Notes to Consolidated Financial Statements-Note 9-Goodwill and Intangible Assets,” Item 8 of Part II, included elsewhere in this report, for additional information.

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Capital Expenditures

We made $75.4 million of capital expenditures during the year ended December 31, 2023. Capital expenditures in 2024 are expected to be approximately $85.0 million, although the actual amount may vary depending upon a variety of factors, including the timing of certain capital project implementations and receipt of capital purchases due to supply chain challenges. Capital expenditures generally relate to investments to support the manufacturing and distribution of products, our go to market activities and continued investments in information technology and facilities to support our global strategic initiatives.

Cash Flows

The following table presents the major components of net cash flows from operating, investing and financing activities for the periods indicated:

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Cash Flows from Operating Activities

The increase in cash provided by operating activities for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily related to changes in working capital, largely driven by inventory. These inventory changes were driven by improvements in our supply chain and overall year-end inventory position. Working capital at any specific point in time is subject to many variables, including seasonality and inventory management, the timing of cash receipts and payments, vendor payment terms and fluctuations in foreign exchange rates.

Cash Flows from Investing Activities

The decrease in cash used in investing activities for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily driven by cash paid during the year ended December 31, 2022 for the acquisitions of trademarks related to our putter business, as well as cash paid for business acquisitions during the same period. This was offset in part by cash paid for the acquisition of trademarks related to our gear business during the year ended December 31, 2023 and an increase in capital expenditures for the same period, driven by investments in our manufacturing capacity, as well as investments in our office, fitting and testing facilities.

Cash Flows from Financing Activities

The increase in cash used in financing activities for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily driven by an increase in purchases of common stock, as well as a decrease in net proceeds from borrowings.

Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

A review of our cash flow activities for the year ended December 31, 2022 as compared to the year ended December 31, 2021 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Annual Report for the year ended December 31, 2022, which was filed with the SEC on March 1, 2023, and is incorporated herein by reference.

Contractual Obligations

Our principal contractual obligations and commitments consist of long term debt obligations, interest on debt obligations (including unused commitment fees related to our revolving credit facility), operating and finance lease obligations, purchase obligations and pension and other postretirement benefit obligations.

See "Notes to Consolidated Financial Statements-Note 11-Debt and Financing Arrangements", "Note 4-Leases", "Note 22-Commitments and Contingencies" and "Note 14-Pension and Other Postretirement Benefits" in Item 8 of Part II of this

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Annual Report for more information on the nature and timing of obligations for debt, leases, purchase obligations and pension and postretirement benefit plans, respectively. The future amount of interest expense payments are expected to vary as discussed in "Interest Rate Risk," Item 7A of Part II, included elsewhere in this Annual Report.

Off‑Balance Sheet Arrangements

As of December 31, 2023, other than as discussed above, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

    A summary of significant accounting policies is included in Note 2, "Summary of Significant Accounting Policies," to the Consolidated Financial Statements in Item 8 of Part II, which is incorporated herein by reference. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. We believe the following judgments and estimates are critical in the preparation of our consolidated financial statements.

Goodwill

We evaluate goodwill for impairment annually and whenever events or circumstances indicate that the carrying amount of this asset may not be recoverable. We test goodwill for impairment by comparing the fair value of the reporting unit to its carrying value. The fair value of our reporting units is determined using the income approach. Under the income approach, we estimate the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on management’s estimates of revenue growth rates, taking into consideration industry and market conditions. The discount rate is the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the reporting unit’s ability to execute on the projected cash flows. This analysis contains uncertainties related to estimating revenue growth as it requires us to make assumptions and apply judgments to estimate industry economic factors and the profitability of future business strategies. If actual results are not consistent with our estimates and assumptions, we may be exposed to future impairment losses that could be material.

If the fair value of a reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we would record an impairment loss equal to the difference, not to exceed the total amount of goodwill allocated to the reporting unit.

We perform our annual impairment test of goodwill during the fourth quarter of our fiscal year. There were no impairment losses recorded for the years ended December 31, 2023, 2022 and 2021.

Pension and Other Postretirement Benefit Plans

We provide various post-employment plans including defined benefit plans (or "pension plans") and postretirement benefit plans which provide benefits to certain eligible U.S. and foreign employees. Projected benefit obligations are measured using various actuarial assumptions, such as discount rate, rate of compensation increase, mortality rate, turnover rate and health care cost trend rates, as determined at each year end measurement date. The measurement of net periodic benefit cost is based on various actuarial assumptions, including discount rate, expected return on plan assets and rate of compensation increase, which are determined as of the prior year measurement date. Our actuarial assumptions are reviewed on an annual basis and modified when appropriate.

Our projected benefit obligations related to our pension and other postretirement benefit plans are valued using a weighted‑average discount rates of 4.93% and 4.92%, respectively, for the year ended December 31, 2023. Decreasing the discount rates by 100 basis points would have increased the projected benefit obligations of our pension and other postretirement benefit plan by approximately $32.6 million and $1.0 million, respectively, for the year ended December 31, 2023.

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    Our net periodic benefit cost related to our pension and other postretirement benefit plans is calculated using a weighted average discount rate of 5.16% and 5.10%, respectively, for the year ended December 31, 2023. Decreasing the discount rate by 100 basis points would increase net periodic pension cost by less than $0.1 million and increase other postretirement benefit cost by approximately $0.3 million for the year ended December 31, 2023. Additionally, our net periodic benefit cost related to our pension plans is calculated using an expected return on plan assets of 3.91% for the year ended December 31, 2023. Decreasing the expected return on plan assets by 100 basis points would increase net periodic pension benefit cost by approximately $2.0 million for the year ended December 31, 2023.

Income Taxes

Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as from net operating losses and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates that are based on a number of factors, including historical experience and short-range and long-range business forecasts. As of December 31, 2023, we had a valuation allowance on certain net operating loss and tax credit carryforwards based on our assessment that it is more likely than not that the deferred tax assets will not be recognized. As of December 31, 2023 and 2022, the cumulative valuation allowance against deferred tax assets was $34.0 million and $34.1 million, respectively.

We are subject to income taxes in the U.S. and foreign jurisdictions. We account for uncertain tax positions using a more likely than not threshold for recognizing and resolving uncertain tax matters. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the outcome of these matters will not be different. We adjust these reserves in light of changing facts and circumstances, such as the closing of tax audits or refinement of an estimate. To the extent the outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes and the effective tax rate in the period in which the determination is made.

Recently Issued Accounting Standards

We have reviewed all recently issued accounting standards and have determined that, other than as disclosed in “Notes to Consolidated Financial Statements – Note 2 – Summary of Significant Accounting Policies”, Item 8 of Part II, included elsewhere in this report, such accounting standards will not have a significant impact on our consolidated financial statements or otherwise do not apply to our operations.

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